Odd as that may sound, right now, “Big Beer” is eyeing the cannabis beverage market … with both fear and greed.

You see, industry giants like AB InBev and MolsonCoors have been watching U.S. sales drop over recent quarters. A report from last fall showed that total beer shipments dropped 1.3% in 2017, with declines coming to major domestic brands — Budweiser (-6.8%), Coors Light (-4.1%), Miller Lite (-2.8%) and the most popular U.S. brand, Bud Light (-5.7%).

It’s not necessarily that the U.S. consumer is drinking less alcohol … just less “Big Beer.” They’re turning more to wine blends, spirits, and cider. And if they’re drinking beer, it’s often from a craft brewery.

And now comes the latest threat — cannabis drinks.

Research reports suggest that beverages infused with marijuana-derived compounds could swell to become a $600 million market in the U.S. within the next four years, outpacing the growth of other categories of retail cannabis products.

And much of these gains could be driven by Big Beer itself as a way to capitalize on shifting consumer preferences … rather than be hurt by them.

So, in today’s Digest, let’s look at the rise of cannabis-infused beverages. It’s a strange, small market at the moment, but big growth projections suggest it could be worth hundreds of millions of dollars in just a few short years.

More importantly, it’s another illustration of marijuana’s expanding impact on our culture and our investment markets.

Well, one option is to get ahead of the curve by investing in the upstarts themselves. That’s what cigarette-giant, Altria did when it purchased 35% of the e-cigarette company, Juul. And it’s also what we’re seeing in the alcohol industry now.

Last year, MolsonCoors took a controlling interest in a joint venture with the Canadian marijuana company, HEXO. AB InBev dumped $50 million into a similar joint venture with marijuana company, Tilray. Meanwhile, Heineken-owned Lagunitas, in partnership with Sonoma’s CannaCraft, sells a marijuana-infused sparkling water at California marijuana dispensaries. Finally, Constellation Brands, which controls Corona and Modelo, invested almost $4 billion in a 38% stake in Canopy Growth.

All of this investment is banking on one thing — consumers will want to drink their marijuana.

According to BDS Analytics, through November 2018, cannabis beverages made up 5% of the marijuana edibles market nationwide. But the research firm Canaccord believes this number could grow to 20% by 2022. If so, that would put the market segment’s valuation at roughly $600 million.

***Behind this growth in marijuana beverages are shifting preferences from millennials

According to a recent study from A.T. Kearney, 30% of Americans would be willing to try a cannabis-infused non-alcoholic beverage. And most likely to be fans? Millennials.

A recent survey of 50,000 millennials found they’re drinking less alcohol than prior generations, yet consuming more marijuana.

A separate study pointed toward a key takeaway:

For the first time, trends in alcohol and marijuana use are substantially diverging, suggesting that the historical relationship between these two drugs may be changing.

For example, a recent MarketWatch article featured a 27-year old millennial named Jena who has switched from alcohol to marijuana. As to why, she points toward fewer calories, no hangover, and lower cost.

From the article:

The street price for marijuana in Chicago is $18 per gram, and the average beer at a bar is $6. Jena said she used to spend $30 to $50 on alcohol in a night, several nights a week, and now spends less than $30 on marijuana a month.

We’re already beginning to see this split between alcohol and marijuana manifest on a bigger scale. For example, a 10-year study conducted by researchers at University of Connecticut and Georgia State University found that in U.S. counties where marijuana was legalized, purchases of wine and beer decreased by 15%.

So, what’s the potential growth look like for cannabis beverages?

In legal adult-use marijuana markets, infused beverages make up just 2% to 3% of total sales. But MolsonCoors CEO, Mark Hunter, said he believes drinks could soon make up 20% to 30% of cannabis sales. In other words, 10X growth.

***Pulling back, whether cannabis beverages become popular or not, we believe they’re another illustration of the huge investment potential of the broader marijuana sector

Regular Digest readers know that we believe legalized marijuana is creating one of the most lucrative investment opportunities we’ll see in our lifetime. The amount of wealth this will create is going to be staggering.

That’s based on growth projections — not hyperbole. For example, according to financial firm Cowen and Co., recreational cannabis was a $6 billion industry in 2016. By 2025, that number is projected to soar to $66.3 billion according Grand View Research.

But if you’ve been watching the marijuana sector over recent weeks, you’ve seen some marijuana stocks pulling back from their highs. What does this mean for investors?

Matt McCall is our resident marijuana expert, having been a leader in the space since 2014 — well before practically any other analyst had it on their radar. Given his expertise and experience in the industry, many of Matt’s early recommendations have soared hundreds, even thousands of percent.

Matt recently wrote about marijuana’s pullback, and the need to view it in the proper perspective:

… marijuana stocks as a group are well off their highs from earlier this year.

However, don’t make the same mistake a lot of people will make when short-term corrections come. Don’t sell your holdings because some idiot tells you “the marijuana bubble has popped.”

Instead of selling, just remember: When you study the history of massive, world-altering business trends and the long-term wealth-building opportunities they create, you’ll learn that any time a major new industry is in its early stages, temporary bouts of extreme enthusiasm followed by sharp corrections (aka “high volatility”) are the norm — not the exception.

This is what many cannabis skeptics fail to mention in their critiques of the sector. They see excesses of short-term optimism and then make blanket statements about how the whole sector is a terrible investment that should be avoided like the plague forever. They make no distinction between short-term “froth” in the market and the incredible long-term business fundamentals.

I encourage you to view the legal marijuana market like a seasoned growth investor views it. Make the intelligent distinction between the very short-term picture and the long-term picture … and focus on the long-term picture.

In past Digests, we’ve illustrated Matt’s point visually by looking at two charts. Short-term, reactive investors tend to focus on pullbacks like this …

Whereas long-term investors with a greater awareness of market history keep the likelihood of the following in mind …

Some of his prior picks made over the last 12-18 months have already risen hundreds of percent, such as Innovative Industrial Properties, up 220% as I write.

While that’s great, even more exciting is the fact that some of Matt’s other high-flying picks have pulled back in recent months, which presents fantastic buying opportunities for investors who didn’t get a chance to establish positions earlier. For example, Ellixinol, Akerna, and Charlotte’s Web are all trading at solid discounts to recent highs.